First Merchants outlines mid-first quarter close for First Savings acquisition while targeting continued loan growth

Earnings Call Insights: First Merchants Corporation (FRME) Q3 2025

MANAGEMENT VIEW

* CEO Mark Hardwick announced, "We delivered another 9% loan growth quarter and $0.98 of earnings per share. ROA totaled 1.22%...and the efficiency ratio was 55%, which is consistent with the high performance we strive for." He highlighted the announced acquisition of First Savings Financial Group, adding approximately $2.4 billion in assets and expanding into Southern Indiana. The integration is anticipated for mid-first quarter close and mid-second quarter integration, with a targeted 3-year earn-back.
* Hardwick stated, "We also believe the verticals will prove beneficial by enhancing fee income through their originate and sell models for SBA loans and first lien HELOCs by adding an additional loan growth and liquidity lever through their triple net leasing business."
* President Michael Stewart explained, "$268 million in commercial loan growth for the quarter, over 10% annualized. $699 million of loan growth year-to-date, over 9% annualized." Stewart also noted, "The quarter ending pipeline...is consistent with prior quarter end and gives me optimism that we will be able to maintain our loan growth...into the fourth quarter."
* Stewart commented on deposits: "The Consumer segment...was the driver of our deposit growth during the quarter, $96 million in total. The mix is particularly pleasing with the non-maturity categories growing at nearly 5% annualized."
* CFO Michele Kawiecki stated, "Total revenues in Q3 were strong with meaningful growth in both net interest income of $0.7 million and noninterest income of $1.2 million. This resulted in overall pretax pre-provision earnings of $70.5 million. Tangible book value increased 4% linked quarter and 9% when compared to the same period in the prior year."
* Kawiecki further noted, "Adjusted pretax pre-provision earnings increased by 4.7% and totaled $208.6 million year-to-date 2025."
* John Martin, Chief Credit Officer, reported, "In Q3, we saw robust loan growth across the portfolio with a $289 million increase in total balances quarter-over-quarter or 8.7% annualized. C&I lending grew by $169 million this quarter, continuing its strong momentum from last quarter."

OUTLOOK

* Kawiecki indicated, "We would expect Q4 to be relatively in line with Q3. And that is, I would say, after you back out those onetime expenses...not expecting any meaningful increase. So we should have a pretty disciplined finish to the year."
* On margins, Kawiecki stated, "Assuming we get rate cuts in October and December, I would expect to see a few basis points of margin compression in Q4. For each 25 basis point cut, our margin declines about 2 basis points."
* Hardwick said, "We anticipate a mid-first quarter closing, a mid-second quarter integration and are confident in achieving the announced 3-year earn-back" for the First Savings acquisition.
* Stewart expressed optimism for continued loan growth: "I do feel good about the fourth quarter. And there's nothing...crazy activity like that. This is just -- I feel like normal run rate."

FINANCIAL RESULTS

* Year-to-date net income totaled $167.5 million, an increase of $31.9 million or 23.5% from the 9 months ended 2024, while earnings per share totaled $2.90, an increase of $0.59 or 25.5% during the same period.
* Tangible book value increased 4% linked quarter and 9% year-over-year. The tangible common equity ratio rose to 9.18% from prior periods.
* Net interest income on a fully tax equivalent basis was $139.9 million, up $0.7 million linked quarter and $2.9 million from the same period last year.
* Noninterest income totaled $32.5 million, with customer-related fees of $29.3 million.
* Noninterest expense for the quarter was $96.6 million, including $0.9 million of severance and acquisition costs. Core expenses were $95.7 million.
* The allowance for credit losses at quarter end was $194.5 million, with a coverage ratio of 1.43%.
* The total cost of deposits increased 14 basis points to 2.44%.

Q&A

* Damon Del Monte, KBW, asked about core expenses going into Q4 and 2026. Kawiecki responded, "We would expect Q4 to be relatively in line with Q3...not expecting any meaningful increase."
* Del Monte queried the impact of potential rate cuts on margin. Kawiecki answered, "For each 25 basis point cut, our margin declines about 2 basis points...we're actively moving rates paid on deposits down in response."
* Nathan Race, Piper Sandler, questioned deposit pricing trends and future repricing. Kawiecki said, "We have probably about $2.5 billion in deposits that are indexed...we'll have the ability to move pricing on a pretty good chunk of deposits down."
* Race asked about the triple net lease portfolio from First Savings. Hardwick replied, "What I love about the triple net lease portfolio is we have optionality."
* Daniel Tamayo, Raymond James, inquired about sustainability of C&I loan growth. Stewart responded, "It is just core bread and butter, if you will, C&I activity that we really like."
* Brian Martin, Janney, asked about fixed rate loan repricing. Kawiecki stated, "In the fourth quarter, we have about $130 million of fixed rate loans that will mature, and those are sitting at about a yield at about 5%."
* Terence McEvoy, Stephens, asked about deposit costs. Kawiecki noted, "We did see them come down a few basis points at the end of the quarter."
* Brendan Nosal, Hovde Group, discussed capital deployment. Hardwick said, "We'll continue to use 1/3 or more for our asset generation...1/3 for dividends...and the remaining amount...look at ways to either take advantage of our current multiples."

SENTIMENT ANALYSIS

* Analysts focused on sustainability of loan growth, rising deposit costs, and the impact of rate cuts, with a tone that was generally neutral but probing for clarity around cost management and future outlook.
* Management maintained a confident tone during prepared remarks, emphasizing strong loan growth, acquisition execution, and disciplined expense management. In Q&A, management responded directly but noted uncertainty regarding competitive pricing and market dynamics, using phrases like "we're hopeful" and "we think we'll have the ability."
* Compared to last quarter, both management and analysts displayed similar levels of cautious optimism, with ongoing interest in deposit competition and loan growth drivers.

QUARTER-OVER-QUARTER COMPARISON

* The key difference this quarter is the announced acquisition of First Savings Financial Group, compared to Q2 which focused primarily on organic growth. Management now emphasizes integration and new fee income streams while maintaining focus on core markets.
* Loan growth accelerated with $699 million year-to-date, compared to $430 million at Q2. Commercial loan pipelines remain strong.
* Deposit cost increased from 2.3% to 2.44%, reflecting competitive dynamics.
* Management confidence remains high, stressing operational discipline, but also notes more aggressive deposit pricing due to strong loan growth and acquisition funding needs.
* Analysts continue to focus on interest margin, expense discipline, and the competitive landscape for both loans and deposits.

RISKS AND CONCERNS

* Management highlighted ongoing competition for deposits, requiring "specials" to fund strong loan growth.
* Margin compression risk is tied to potential rate cuts, as "for each 25 basis point cut, our margin declines about 2 basis points."
* The integration of First Savings brings credit and asset mix considerations, particularly around the triple net lease portfolio and SBA lending.
* Credit risks remain under review, with classified loans and nonperforming assets monitored closely.

FINAL TAKEAWAY

First Merchants Corporation's third quarter call emphasized robust core loan growth, disciplined expense management, and the strategic acquisition of First Savings Financial Group, which is expected to close in the first quarter of 2026. Management remains confident in sustaining growth, integrating new fee income streams, and maintaining a strong capital position while staying attentive to margin pressures and deposit competition as market conditions evolve.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/frme/earnings/transcripts]

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* First Merchants Corporation 2025 Q3 - Results - Earnings Call Presentation [https://seekingalpha.com/article/4832424-first-merchants-corporation-2025-q3-results-earnings-call-presentation]
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